Amazon Fires in a Global Context of Deforestation: need for increased Investor awareness - Vigeo Eiris
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Amazon Fires in
a Global Context of
Deforestation:
need for increased
Investor awareness
OPINION COLUMN
September 2019
Introduction
Over the past weeks, forest fires have been ravaging the Brazilian Amazon region and
made the headlines in the international newspapers during several days. The number of
forest fires is higher in the Amazon regions where they are used – mainly by farmers - as
the main tool to free land for agriculture.
Investors & Asset Managers should be aware of the reputational and financial risks they are
facing if they don’t take sufficiently into account this issue in their investment decisions.
Moreover, the huge media coverage and focus on the Amazon region should not divert
also attention from other vulnerable regions. On the other hand, engaging companies on
this issue could also be an opportunity in terms of reputation and reduced risk exposure.
Vigeo Eiris monitors the involvement of companies of different sectors in deforestation
through its Controversy Risk Assessment database, either through direct impact on
biodiversity ( for companies that have a direct involvement through forest management,
mining activities, oil & gas extraction, etc) or through supply chains (mainly for food
production). In addition, Vigeo Eiris assesess companies commitments and due diligence
measures on different sustainability drivers linked to deforestation such as Biodiversity,
Environmental and Social standards in the Supply Chain and Human Rights.
As indicated below, Vigeo Eiris findings show that investors should not only care for
Amazon fires but also for deforestation in other vulnerable regions such as Indonesia and
Malaysia, where the big majority of controversies are reported.
OPINION COLUMN
Vigeo Eiris’ key findings
Overall, 90 controversies, related to deforestation, and involving 50 companies,
were identified in Vigeo Eiris controversy database
22 cases also involved Human Rights violations with responsibility of companies
The Food sector is the most exposed, facing 58 cases overall
The most affected countries are Indonesia and Malaysia
2
Context of global Deforestation
power generation and for domestic use (wood
Amazon fires pellets for domestic heating), is leading to more
After a serious decline in the early 2000s, and deforestation in areas of Europe and North
a minimum reached in 2012, deforestation America.
in Brazil has re-emerged, reaching 7,900
km2 lost in 2018. Between 2004 and 2018, G7 raises voice
the rate of deforestation fell by 73% thanks to The G7 Summit in France has reaffirmed the
protective measures and then a moratorium on widening gulf between those demanding urgent
the development of soybean crops. But it has climate action and the lack of real progress
increased by 8% between 2017 and 2018. And from the world’s largest economies. During
according to the WWF, the rate of deforestation the Summit, G7 leaders also agreed on an
increased by 278% between July 2018 and July international financial and logistical assistance
2019. In total, from 1982 to 2016, the forest in package to help combat the Amazon forest fires.
the Brazilian Amazon has lost 8% of its area, or
385,000 km2. However, Greenpeace International Executive
Director Jennifer Morgan said: “While we
It is estimated that the Amazon region alone welcome these immediate measures, … G7
captures a quarter of the 2.4 billion tons of CO2 leaders must not use the Amazon fires to
absorbed by the world’s forests. Deforestation disguise their own failures to act at home, …
reduces on the one hand the forest’s absorption In addition, G7 countries must stop fuelling
capacity - it also impacts the soil’s storage the destruction of the Amazon through the
capacity - and on the other hand emits CO2; import of agricultural products associated
the emission is even immediate in case of with deforestation and soil degradation.”
fire. In some years, forest fires accounted for Greenpeace France Executive Director Jean-
half of Brazil’s greenhouse gas emissions. François Julliard added: “France and other
It is estimated that deforestation in the developed countries are responsible for the dire
Amazon represents 8% of global emissions of Amazon situation through their economies and
greenhouse gases of human origin (10 to 12% contribution to imported deforestation, fuelled
for all tropical forests). by ill-designed public policies in sectors like
No less than 24 million people live in the agriculture, timber and bio-energies.”
Brazilian part of the Amazon, among which
more than 430,000 indigenous people. For
Internationl trade in beef, soy and
these populations, the forest is vital. Its palm oil accelerate deforestation
destruction means an irreparable loss of Along with beef and soy, palm oil and other
territory. However, it is already estimated that everyday foods have long been known to OPINION COLUMN
68% of indigenous lands and protected areas in accelerate deforestation in countries such as
the nine countries that encompass the Amazon Brazil and Indonesia. We could add maize, sugar
region are threatened by deforestation caused cane (also used to produce agro-fuel), coffee,
by agriculture, roads, mines, dams, oil drilling, oranges, cotton, wood, paper pulp, minerals,
or forest fires. etc. A study, published in April 2019 by Chalmers
University in Sweden, found that 29-39 percent
Not only the Amazon region hit by of the carbon dioxide (CO2) released through
deforestation deforestation is driven by international trade
It should also be noted that the Amazon is - with farmers felling forests to clear space for
not the only forest to be hit by fires. Important croplands, pastures and plantations that grow
fires are also taking place in sub-Saharan goods often consumed abroad. In many rich
Africa (Ghana and Ivory Coast), Indonesia and countries, the authors wrote, the deforestation-
Siberia. In Indonesia and Malaysia, more than related emissions “embodied” in imports are
100,000 orangutans have been killed since greater even than those generated by domestic
1999, according to a study published last year. agriculture.
Also the increasing role of biomass, both for
3In a challenge to traditional carbon dioxide 2017, representing USD 29 trillion in assets,
accounting practices, the researchers estimated requested corporate deforestation data
about one-sixth of the CO2 released into the through CDP. Furthermore, the FAIRR Index,
atmosphere from a typical European diet an index that represents 60 companies which
could be linked to deforestation in the tropics are a critical part of the global food chain,
through imported commodities. Experts fear representing listed producers of animal proteins
deforestation and the associated destruction will for human consumption, disclosed that 84% of
continue to rise as middle-income countries meat and dairy companies do not report any
grow richer. targets or policies regarding deforestation.
Mercosur
Palm oil, soy and beef markets are dominated As expected, according to Vigeo Eiris
by multinational companies, some of which are Controversy Risk Assessment Database, the
head-quartered in Europe and North America. most exposed companies to deforestation
“If the EU can pressure them to change their operate in the Food sector. Indeed, out of the
production practices, that can have an impact 90 deforestation cases identified by Vigeo Eiris
on other countries,” said Persson, one of the (see below), between December 2014 and July
contributors to the study. In 2018, 78.8% of 2019, 64% were attributed to food companies.
the EU’s beef imports came from Mercosur Cargill, Golden Agri Resources and Kellogg
(Brazil, Argentina, Uruguay and Paraguay). were all involved in at least 4 controversies
In the state in which it was negotiated, the EU- regarding deforestation during these last five
Mercosur agreement would allow more beef to years, over rainforest destruction in Indonesia
be imported at lower cost. Some people state for palm oil production, draining peatlands for
that this agreement would be an incentive to industrial plantations, facilitating fire haze in
develop livestock and, consequently, increase Indonesia or destruction of biodiversity linked to
deforestation. The European Union, however, is palm oil sourcing.
committed to put an end to global deforestation
by 2020 and to using trade agreements as a
leverage to promote sustainable development
and human rights. Threatening not to conclude
the agreement with Mercosur - which still has
to be approved by the European Parliament
and by the Member States - or to reopen the
negotiations would be a leverage to put pressure
on those countries.
Food companies most involved in
deforestation
Companies are one of the biggest drivers of OPINION COLUMN
deforestation. Companies, fulfilling consumer
demands, generate the request for the four
commodities or resources responsible for the
majority of forest loss: cattle products, timber
products, palm oil and soy. These resources
are found in our daily-basis products and goods.
The risks that companies are facing regarding
the challenges associated with producing and
sourcing commodities are putting revenues at
risk. According the Carbon Disclosure Project
(CDP), if companies will not find alternatives
or sustainable supplies of these commodities
in the future, up to USD 940 billion in annual
turnover could be at risk. Yet, only one in
five companies assess risks associated with
deforestation beyond a six year horizon.
Additionally, the CDP reports that investors in
4Vigeo eiris key findings* on
companies facing controversies
related to deforestation
*Based on Vigeo Eiris Controvesry Risk Assessment database
Overall, 90 controversies, related to 22 cases also involved Human Rights
deforestation, and involving 50 companies, violations with responsibility of companies
were identified in our controversy database
Most exposed companies: Cargill; Pepsico;
A big majority (65%) failed to show any Golden Agri Resources, Kellogg
corrective or remediative measures
implemented as a reaction to the allegations The Food sector is the most exposed, facing
faced 58 cases overall
Of the 29 cases of high severity, 19 took place The most affected countries are Indonesia
in Indonesia and 3 in Brazil and Malaysia
6 cases related to the Amazon region
impacting Brazil, Bolivia and Peru
OPINION COLUMN
5Good Practices
According to Vigeo Eiris analysis on the
integration of environmental factors in the
supply chain some Food companies managed
to distinguish their performances with robust
and advanced scores, including Campbell Soup
57/100 (United States), Huon Aquaculture
OPINION COLUMN
Group 62/100 (Australia), Unilever 63/100
(United Kingdom) and Danone 66/100
(France). Regarding Luxury and Cosmetic
companies, palm oil sourcing is the main cause
of deforestation, yet companies such as L’Oréal
disclose exhaustive and ambitious commitments
linked to improving the traceability of supply
chains within a short time frame. L’Oréal set a
target to reach 100% of palm oil sourced from
deforestation-free sources by 2020 as well as
measures like selecting suppliers based on
their environmental and social performances.
In addition, cosmetics companies are beginning
to implement alternatives, with L’Oréal, for
instance, partnering with independent American
farmers for its sourcing of plants.
6What can investors do in order to
reduce deforestation risk?
As investors also take more and more into Investors can commit to specific investor
account the climate resiliency and carbon initiatives such as the Investor Initiative for
footprint of their portfolios, they should consider Sustainable Forests, a collaboration by the
risks associated with deforestation. Different U.N.-supported Principles for Responsible
actions can be taken: Investment and U.S. non profit Ceres to foster
engagement between investors and those
Investors can screen and grade companies in
companies exposed to deforestation risks
order to guide their investment decisions.
linked to soy and cattle production in South
Investors can demand that companies America.
transparently report on their commitments,
targets and due diligence, and how these
are being implemented and monitored.
Companies should measure and report on
their deforestation actions.
Investors can use their influence, including
through shareholder resolutions and the
threat of divestment, to push companies
into better managing deforestation risks. For
example, members of the CERES Investor
Network on Climate Risk and Sustainability —
comprising nearly 150 institutional investors
who collectively manage more than $23 trillion
in assets — have pressed companies such
as Kraft, DuPont, and Mondelez to address
deforestation through shareholder resolutions.
Investors can demand companies to make
commitments to source only credibly certified
commodities — such as RSPO-certified palm
oil, timber products certified by the Forest
Stewardship Council (FSC), and Round Table
on Responsible Soy (RTRS)-certified soy.
OPINION COLUMN
7Outlook
The recent fires in the Amazon and the huge regions such as Indonesia, Malaysia, Ghana &
media exposure and worldwide outrage Ivory Coast, where the companies in Vigeo Eiris
these events created have put the issue of universe are facing the highest number of
deforestation again in the spotlight of attention. controversies.
Companies and investors exposed to With a growing middle-class in emerging
deforestation are increasingly aware of the countries and a changing food pattern towards
risks (reputation, licence to operate, boycotts, more meat and diary products, the need for
lawsuits) they are facing when they fail to more engagement of companies on this issue
implement responsible due diligence measures. will only become more important in the future.
Vigeo Eiris data show however that the largest Finally, this can also be an opportunity.
and well known companies are still involved in Companies and investors that are able to
controversies related to deforestation practices, show they are dealing in a responsible way
as a result of their core business. In addition of with deforestation can ultimately bear the fruits
the destructive impact on the environment and of their positive actions and be rewarded by
climate change, these controversies go often stakeholders and financial markets, leading to
hand in hand with violations of social and better overall performances.
human rights. Vigeo Eiris data also show that
attention should not only be focussed on the
Amazon region, but also on other vulnerable
Sources
(1) “Greenpeace statement on Amazon forest fires” – Press release by Greenpeace International – 22/08/2019
(2) “Dix questions pour comprendre pourquoi le monde s’enflamme pour l’Amazonie” – Le Soir – 28/08/2019
(3) “Global forests on fire: G7 must lead accelerated climate action” - Press release by Greenpeace International
– 23/08/2019
(4) “G7 Summit: climate pledges but no binding decisions to rapidly cut emissions” - Press release by Greenpeace
International – 26/08/2019
(5) “Mass deforestation: How trade fells trees in Brazil and Indonesia” - Ajit Niranjan – 17/04/2019 - Website
of Deutsche Welle - https://www.dw.com/en
(6) “Agriculture au Brésil” – Wikipedia article – accessed in August 2019 OPINION COLUMN
(7) CDP report “Revenue at risk: Why addressing deforestation is critical to business success” – December 2016
(8) CDP website - https://www.cdp.net/en/articles/forests/valuing-forests-why-investors-must-wake-up-
to-deforestation - accessed 29/08/2019
(9) Brink website - https://www.brinknews.com/why-investors-are-backing-zero-deforestation/ - accessed
29/08/2019
(10) FAIRR website - https://www.fairr.org/index/about-the-index/ - accessed 29/08/2019
(11) CERES website - https://www.ceres.org/networks/ceres-investor-network - accessed 30/08/2019
(12) “Corporations pile pressure on Brazil over Amazon fires” – The Guardian - https://www.theguardian.com/
world/2019/aug/30/corporations-pile-pressure-on-brazil-over-amazon-fires-crisis - 30/08/2019
8Authors:
Lauren Boulie Maria Juliana Ortiz
Food & Health sector expert Team Manager Food & Health
Paris Paris
Mohammed Nkhili Albert Charlier
Specialized Research Analyst Senior analyst Basic Resources
Controversies
Brussels
Rabat
This study was written under the direction of:
Fouad Benseddik Jordi Lesaffer
Director of Methods and Product Manager Controversy
Institutional Relations Risk Assessment
Brussels
For more information:
Press contact: Anita Legrand - anita.legrand@vigeo-eiris.com / +33 1 55 82 32 44
General information: Amélie Nun - amelie.nun@vigeo-eiris.com / + 33 1 55 82 32 77
Vigeo Eiris is an international provider of environmental, social and governance (ESG) research and services
for investors and public & private organisations. We undertake risk assessments and evaluate the level of
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